Module 4:
Private sector engagement for NDC
implementation
Organized by
With support from

Discuss advantages of engaging the private sector in the development and
implementation of NDCs in Africa
Describe how the access of micro, small, medium and large enterprises to
climate finance can be enhanced to support NDC implementation in Africa
Objectives

Key private sector actors in the agricultural value chain ecosystem
Source: World Bank: Adapted from FUTURE of FOOD Maximizing Finance for Development in Agricultural Value Chains; Adapted from Pathways to Prosperity, Rural and Agricultural Finance,
State of the Sector Report: Feed The Future, ISF, Mastercard Foundation and Rural and Agricultural Finance LEARNING LAB
Input Providers Producers
Storage and
Transportation
Traders and Off
takers
Processors
Distributors
and Marketers
Business climate (including policies, regulation and market structure)
Support services (including finance, information, technology, water, power and infrastructure)

Public sector sets the NDC, whereas private sector is critical to implement it
Engaging the private sector in the NDC process can can help bridge part of the financing gap,
support sustainable economic growth, social inclusion and environmental conservation by:
• Aligning long-term public and private strategies
• Mobilizing domestic and international private capital and technical capabilities
• Create numerous job opportunities
• Leverage the efforts of governments, engage civil society and community efforts
• Develop innovative climate mitigation and adaptation technologies
Importance of Private Sector Engagement
Source: UNDP, Private Sector Engagement and Coordination Framework, April 2019

For every US$ 1 of official development assistance spent in Africa in 2016, there was:
US$ 2 foreign direct investment
US$ 10 private sector investment
US$ 11 government spending
$48.737 billion was invested in the African food and agriculture sector by foreign
private-sector investors between 2003 and 2017
Only 200 companies pledged US$10 billion of investment commitments in 12
countries, with 70% of those commitments coming from African agribusinesses
The private sector in output value chains handles 80% of Africa’s food consumption
Private Sector Investment for Effective NDC Implementation
Source: WEF Grow Africa: Partnering to Achieve African Agriculture Transformation, 2016; Foreign direct investment in the African food and agriculture sector: Trends, determinants and
impacts, ZEF; USD1: OECD (2017); USD 2: UNCTAD (2017); USD 10: IZA [Institute for the Study of Labor] (2009), World Bank 2016); (USD 11: World Bank (2016); AGRA, The Hidden Middle, 2019

Identify the barriers to private sector investment across relevant priority actions: policy and
regulatory environment, actual or perceived risks, transaction costs, etc.
Identify what interventions are needed to address barriers for private sector investment:
• Non-financial interventions: strengthening the rule of law, support competition and
policy reform, reduce government intervention, strengthen investment policy, etc.
• Financial interventions: risk-mitigation instruments, tax breaks, feed-in tariffs, public-
private partnerships, financing to value chain actors (i.e. grants, concessional debt, etc).
Develop public–private financing structures and launch pilot projects to showcase viable
business models and attract further climate investment
Review approaches used by peer countries and consider if they are applicable in your
country. Explore south-south cooperation
Assess and enhance the domestic investment environment
Source: CDKN Planning for NDC Implementation: A Quick-Start Guide

Enhance capacities to support government officials to identify and develop financially viable
opportunities for the private sector:
• Understand how projects are financed and how to build financial models
• Knowledge of financial and investment terminology
• Understand constraints and requirements of investors
• Knowledge of financial and non-financial mechanisms available to reduce risks and
increase the financial viability of projects for the private sector
• Increase skills and experience in conducting commercial negotiations with the
private sector
Strengthen the capacity to develop financially viable opportunities
Source: CDKN Planning for NDC Implementation: A Quick-Start Guide

Promote greater public–private dialogue on climate finance through regular forums and
institutions (i.e. investment platforms, public consultations, etc.) to understand climate
change opportunities and investment barriers, and how these can be addressed
Consider also approaches used by international financial and development institutions, such as
Maximizing Finance for Development or Country Private Sector Diagnostics*
Involve and consult private sector in the design and implementation of national climate
change policies and strategies, to better address investment barriers and opportunities
Private sector might accept policies if they understand them, but they will only endorse them
when the policies benefit them
An ongoing coordination process will ensure progress and accountability
Source: CDKN Planning for NDC Implementation: A Quick-Start Guide; Country Diagnostics Platform developed by EBRD, EIB, IFC, WB, DFID and SIDA
Increase private sector engagement in policies and strategies

Kenya presented an ambitious Nationally Determined Contributions (NDC)
that will require domestic and international public and private capital
The Ministry of Environment and Forestry has continuously involved the
private sector in planning and implementing climate change initiatives
and plans
It also engaged the private sector through an inclusive process to develop
the “Private Sector Engagement and Coordination Framework”. It seeks
to strengthen private sector engagement in climate change actions and
enhance national actions on climate change
The engagement framework will enhance communication, coordination
and tracking of resources while promoting investments in climate change
actions by private sector
Source: Kenya Private Sector Framework, Private Sector Engagement and Coordination Framework, UNDP
Case Study: Private Sector Engagement and Coordination Framework

Use “MFD” approach to attract and engage private sector
Source: World Bank: FUTURE of FOOD Maximizing Finance for Development in Agricultural Value Chains
“MFD”:
Maximizing
Finance for
Development

Case Study: Improving Opportunities Through Cashew Value
Chains in Cote D'Ivoire
Although Côte d’Ivoire produces 23% of the world’s cashew
supply, worth $800 million, fewer than 7% of raw cashew nuts
are processed domestically
Through the MFD approach the World Bank’s investments will
help the government concentrate scarce public funds on sector
policy, institutional, and infrastructure development
IFC will provide innovative financing to catalyze local private
credit across the value chain
About 225,000 cashew farmers are expected to benefit from
these interventions, and through improving quality, raise their
annual raw cashew yields by 20%
Source: WB Brief, July 2015

To unlock additional capital, it is vital to understand the
risk-return profile that an investment represents and
what policies and instruments can be used to motivate
investors
• Return-enhancing policies and instruments: increase
returns for investors, such as financial policies (i.e.
feed-in-tariffs, generation-based incentives, tax
incentives, accelerated depreciation)
• Risk-reducing policies and instruments: lower
investment risks, such as financial policies (i.e.
transparent investment policies, bankruptcy codes) or
instruments (i.e. credit enhancement mechanisms,
guarantees)
Source: Mind the Gap: Bridging the Climate Financing Gap with Innovative Financial Mechanisms, GGI
Policies and instruments to unlock private climate finance

The carbon tax bill is the result of an extensive consultation
with public and private sector actors. It came into effect on
1 June 2019
The objective is to to reduce greenhouse gas emissions in a
sustainable, cost effective and affordable manner
South Africa subsequently set its own domestic targets as
outlined in the Nationally Determined Contribution
It gives effect to the polluter-pays-principle for large
emitters and ensures that firms and consumers take the
negative adverse costs into account in their future
production, consumption and investment decisions. Firms
are incentivized to adopt cleaner technologies
South African Parliament (Daily Maverick, 2013)
Case Study: South Africa’s Carbon Tax Bill
Source: South African Government, Publication of the 2019 Carbon Tax Act

Each source of finance has a different risk tolerance and seeks a different deal size and time
horizon
Understanding main private sector financing sources
Source: Business for Sustainable Landscapes: An action agenda for sustainable development, May 2017

Source: Global Smallholder Farmer Investment Portal, ISF Advisors
Each source of finance has a different target investment size and connection to smallholder
farmers
Understanding main private sector financing sources

Source: World Bank: FUTURE of FOOD Maximizing Finance for Development in Agricultural Value Chains
Each source of finance has a different expected market return depending on the level of
maturity of a given farm/commercial enterprise
Understanding main private sector financing sources

Case Study: Ethiopia’s Climate Resilient Green Economy Facility (1/2)
Source: Climate Resilient Green Economy (CRGE) Facility, Operations Manual (Revised
Version), Government of the Federal Democratic Republic of Ethiopia, June 2018

Led by the Ministry of Finance and Economic Development and the Ministry of Environment,
Forestry and Climate Change. It coordinates closely with other institutions. It has three key
objectives:
• Financial allocation and mobilization: domestic and international public and private climate
finance
• Stakeholder coordination: Government, development partners, private sector, civil society,
etc.
• Unlocking capital at scale: blending and leveraging investment sources
Case Study: Ethiopia’s Climate Resilient Green Economy Facility (2/2)
Source: Climate Resilient Green Economy (CRGE) Facility, Operations Manual (Revised Version), Government of the Federal Democratic Republic of Ethiopia, June 2018

Blended Finance: structuring approach to increase private investment
Blended finance is the use of catalytic capital from public or philanthropic sources to increase
private sector investment in sustainable development
It allows organizations with different objectives to invest alongside each other while achieving
their own objectives (whether financial return, social and environmental impact, or both)
Source: How to Mobilize Private Investment At Scale in Blended Finance, Convergence, April 2020

Unlocking climate finance from the private sector
Source: Mind the Gap: Bridging the Climate Financing Gap with Innovative Financial Mechanisms, GGI
Innovative financial mechanisms
using public capital can lower
investment-risks and unlock private
investments
Each stage of the investment project represents
a different risk/return profile and requires
different financial instruments (grants, equity,
loans, bonds, etc.) from different financing
sources (donors, DFIs, commercial capital, etc.)

Case Study: IFC, GAFSP and Société Générale Invest in Burkina Faso
IFC, GAFSP and Société Générale investment of €70 million to Burkina Faso’s biggest cotton
company, SOFITEX, seeks to help farmers in its supply chain address productivity, water
scarcity, and climate resilience concerns
The facility will allow SOFITEX to purchase raw cotton from over 160,000 farmers in Burkina
Faso to process and export to international markets
Working with local farmers, suppliers and distributors, SOFITEX is playing a significant role in
job-creation, accounting for nearly 80% of Burkina Faso’s cotton production
Donor partners to GAFSP (Canada, Japan, the Netherlands, the U.K. and the U.S) make
possible for IFC to invest in riskier projects with strong potential to promote food security and
reduce poverty
Source: IFC, Ouagadougou, Burkina Faso, 12 May 2015

Engage the private sector as a means, not an end
Ensure institutions are fit for purpose
Invest in the business-enabling environment
Develop a flexible portfolio of private sector engagement mechanisms
Work with a wide range of stakeholders
See partnership as a relationship, not a contract
Take risks if you want others to do so
Good practice for private sector engagement
Source: Private Sector Engagement for Sustainable Development, Lessons from the DAC, OECD (2016)

According to the World Bank, a business is classified as a MSME when it meets two of the
three criteria outlined below
MSMEs account for 90% of private businesses in developing countries
Micro, small and medium enterprises (MSMEs)
Firm Size Employees Assets (US$) Annual Sales (US$)
Micro <10 <100,000 <100,000
Small <50 <3 million <3 million
Medium <300 <15 million <15 million
Source: The SME Banking Knowledge Guide, IFC 2009; Increasing MSME access to climate finance, CDKN and Dalberg, September 2015

Farmer segmentation
Source: Innovative Agricultural SME Finance models, November 2012, IFC and GPFI

The performance of value chains determines the profitability, investment incentives and
productive capacity of small farms. 40% of rural employment time is in self-employed
farming, whereas food system employment in the midstream (processing, wholesale, and
logistics) and downstream (farming) generates another 25% of rural employment
The output value chain post-farmgate is composed nearly entirely of private sector
enterprises—from small and medium enterprises (SMEs) to emerging large enterprises in
the midstream (wholesale, logistics, and processing) and the downstream (retail and food
service)
80% of Africa’s food consumption is marketed and handled mostly through private
operators. The private sector is thus crucial for food security
There has been rapid growth and proliferation of SMEs in the midstream, who in the
aggregate are the biggest investors, creating markets for farmers. SMEs will play a key role
over the next 10–20 years
Agriculture enterprises in Africa
Source: Africa Agriculture Status Report, AGRA, 2019

Supply of agri-MSME finance in sub-Saharan Africa
Source: Pathways to Prosperity, Rural and Agricultural Finance, State of the Sector Report: Feed The Future, ISF, Mastercard Foundation and Rural and Agricultural Finance
LEARNING LAB

ABC Fund is an independent private impact investment fund, managed
by Bamboo Capital Fund, with Injaro Investments Limited as investment
advisor. It has also received public capital from the European
Commission, IFAD, AGRA, etc.
It catalyses blended capital and provides technical assistance to investees.
Its investments are adapted to the needs of rural SMEs, farmers'
organizations, agri-preneurs and rural financial institutions in Africa
It targets commercially viable ventures that help create employment and
improve rural livelihoods. It prioritizes climate-smart projects that
promote sustainable production
It will mobilise EUR 200 million from public and private investors over the
next ten years. It is estimated that some 900,000 households will benefit
Case Study: Agri-Business (ABC) Capital Fund
Source: ABC Fund, IFAD

In Kenya, a micro-creditor (Juhudi Kilimo) with 32,000
clients adopted the F3 Life system
Through F3 Life, small-scale farmers become eligible for
loans if they implement climate-smart practices
Climate-smart practices decrease the risk of crop failure and
thereby increase the chance that farmers can pay back the
loan
Case Study: Microfinance institution uses climate-smart credit in
Kenya
Source: Juhudi Kilimo and F3 Life

Develop adequate enabling environment: A conducive policy, regulatory, strategy an
support framework that encourages private sector participation will be key to increase
private sector investment at scale
Strengthen support for project identification and development: A strong pipeline of
bankable projects is key to attract public and private climate finance. This may require policy
and regulatory changes and readiness support.
Build capacity of domestic financial institutions: It will increase access to international
public and private capital to finance projects and SMEs with strong climate potential. It will
also help them better understand agriculture and climate risk
Enhance risk appetite of domestic financial institutions: Using a wider range of risk-
mitigating instruments (i.e. guarantees, insurance, credit enhancement mechanisms, etc.)
and risk capital will help unlock investments
Increasing private sector access to climate finance
Source: Adapted from Mobilizing Private Sector Investments in Support of Nationally Determined Contributions, CCAP, July 2017

Encourage domestic financial institutions to mainstream climate change: It will increase
their capacity to identify climate risks and investment opportunities, and will also increase
lending to climate related projects
Prioritise blended finance: This structuring approach has an enormous potential to use
scarce public and philanthropic resources to leverage private investment
Promote impact investing: There is a wide range of private investors that can invest climate
finance in SMEs if the projects generate attractive financial, social and environmental returns
Develop innovative financial mechanisms: Countries can develop their own innovative
mechanisms to attract international and domestic public and private capital (i.e. green
bonds, national climate funds, etc.)
Increasing private sector access to climate finance
Source: Adapted from Mobilizing Private Sector Investments in Support of Nationally Determined Contributions, CCAP, July 2017

Secure direct access to climate funds: Support domestic institutions to fulfil the
requirements needed to access climate finance
Design MRV systems: These will be key to implement to efficiently attract, track, allocate
and report the impact of climate finance spending
Replicate and standardize proven climate approaches: This can include regulatory,
programmatic and technical approaches, as well as proven business model and financing
tools
Increasing private sector access to climate finance
Source: Adapted from Mobilizing Private Sector Investments in Support of Nationally Determined Contributions, CCAP, July 2017

Key messages
Develop enabling environment that facilitates private sector engagement
Increase dialogue with domestic and international private sector
Integrate climate action with long-term government policies and strategies
Build capacity of national (financial) institutions to address the needs of MSMEs
Create a pipeline of low-carbon projects that generate acceptable financial return for upscaling
1
2
3
4
5

• NDC Support Programme: Finance and Investment
• Planning for NDC Implementation
• Engaging the Private Sector in National Adaptation Planning Processes
• Fund for Private Sector Assistance (FAPA): Private Sector Investment Initiative for
Nationally Determined Contributions (NDCs) in Africa
• Strategy for Private Sector Engagement
• What you need to know about impact investing
• Convergence Blended Finance
• Blending Climate Finance through National Climate Funds
Available resources